New ATI Chief Plots His Strategy As Rivals Intel, Nvidia Loom Large

@ 2004/06/15

ATI Technologies is running neck and neck with rival Nvidia in the race to sell the most high-performance graphics chips.

James Detar

A third company is taking market share from both companies, though. That company is Intel (NasdaqNM:INTC - News), the world's No. 1 PC microprocessor maker. According to some analysts, it's now also the top graphics chip vendor.

Intel concedes the graphics in its chip sets aren't yet as good as those in the stand-alone chips from ATI (NasdaqNM:ATYT - News) and Nvidia (NasdaqNM:NVDA - News). Yet, more PC makers are opting to use the Intel chip sets, with the graphics that come for "free," rather than add in a separate chip, for which they must pay.

David Orton, ATI's president since 2000, on June 1 also took on the mantle of CEO. He replaced K.Y. Ho, who remained chairman.

In a recent interview with IBD, Orton laid out his strategy to fend off Nvidia and Intel, and to keep ATI growing. He says one key is ATI's speed in adopting a new bus standard called PCI Express. A bus is the channel the lets data flow from a chip to the rest of a system.

PCI Express is the successor to the current standard PCI bus, and both ATI and Nvidia are striving to be among the first to put PCI Express into their chips.

IBD: What changed at ATI when you became CEO?

Orton: The interesting thing for ATI is the way our company is organized. As president and COO, the company reported to me under the old model. So K.Y. and I said, "Let's just go ahead and have the titles reflect the way we do our day-to-day business." Short term, there will be no major changes, and no organizational changes.

IBD: What are ATI's strengths in the graphics chip market?

Orton: If you wind the clock back two and a half years, ATI was strong in notebooks and weaker in desktop PCs, and weaker yet at the high end.

What we were very strong in was notebooks. And with our All-In-Wonder product, we were strong in the vertical retail (consumer electronics) market. The raw enthusiast was not where we were winning.

We said, "Let's go capture the flag in the high end, and gain share in midlevel desktops." We had market share in the mid-20s in desktops a few years ago. We said we need to change that.

IBD: What's your share of desktop graphic chip sales now?

Orton: Most market reports put us at about 35%.

IBD: And you're goal?

Orton: Of course, we would like to be in first place. (Its market share slightly trails Intel and Nvidia in the overall graphics chip field.)

IBD: How realistic is that?

Orton: The key in the next year is the PCI Express rollout. We saw about a year and a half or two years ago that PCI Express was a real opportunity.

If we could deliver low-cost PCI Express and have products available at the time of the PCI Express rollout, we could gain significant market share. Today, we see that opportunity materializing.

IBD: What will ATI offer in PCI Express products?

Orton: We just announced our Radeon X800 (game player) chip. We have a strong product lineup. We are about to roll out top-to-bottom PCI Express chips, starting with the X800 at the high end.

IBD: How much will PCI Express boost PC and graphics chip sales?

Orton: What we'll see in June and July is every major PC (maker) moving to PCI Express. And that will give broad traction to PCI Express.

IBD: How fast will PC makers, and users, adopt PCI Express?

Orton: You will see the changeover (from PCI to PCI Express) in the next six to 12 months. We are entering the true visual age of computing.

IBD: What will it let people do that they can't do now?

Orton: For one, we see a large video editing opportunity. We see more and more of that in the home, as well as by professionals. Not just displaying videos, but editing them.

As your desktop starts to go 3-D, applications will start to leverage that. There will be more and more applications that leverage the insights of the human mind. Instead of reading text, we will go more and more 3-D.

IBD: Intel continues to add more graphics content to its chip sets. What is ATI doing to keep Intel from taking market share?

Orton: The first thing is, we believe in (Intel co-founder Gordon) Moore's Law. Through the combination of architecture advances and (software) algorithm advances, we can double graphics performance every 18 months.

IBD: So you can move graphics technology ahead faster than Intel?

Orton: I don't want to say faster. There's somewhat of a steady state. The number of PCs that sell below $500 is growing. And the lower end tends to favor integrated solutions (like Intel chip sets).

But with coming technical advances, and Microsoft going with Longhorn (new operating system), we believe there's demand for the level of capability in discrete graphics like ours.

IBD: Do you plan to enter any new markets this year?

Orton: Today is a great time for ATI to move to the visual age of computing. Our second area of development beyond the PC is digital TV. In North America, the FCC has said TVs will go HDTV by 2007.